The importance of budget monitoring

Schools rely upon good solid budget plans to survive the inevitable twists and turns that the school year provides. Education Business looks at why budget plans are only worthwhile if schools know they are keeping to them.

Good financial management in schools essentially comes down to maintaining knowledge of where money is coming in and knowing where money is going out.

The average revenue balance across all local authority maintained schools was £120,000. Additionally, 16,534 maintained schools held a surplus revenue balance – translating to an average surplus in each school with a surplus of £134,000. 5.4 per cent of schools were in deficit for the last academic year (2014/15).

With the current financial pressures that schools are facing with squeezed budgets and deficits, budget monitoring is becoming an increasingly important and effective element of financial good practice. Successful budget monitoring reports provide the necessary information about schools’ spending patterns that assist the schools’ management or finance staff to recognise and provide realistic forecasts of year-end under or overspends.

There are two key components of budget monitoring, one leading smoothly into the other. With the vast bulk of any school’s expenditure being on staffing costs, it is important enough to warrant its own process. This is payroll reconciliation – otherwise known as salary monitoring.

A good salary monitor will be a thorough check back of expected employee costs per month to actual employee costs.

The salary monitoring process will often not only identify incorrect staffing forecasts, but also incorrect payments to staff, creating a ‘win-win’ situation. It is important to note that any pending payments or corrections identified in the salary monitoring stage should be noted and used later.

Budget monitoring
When budget monitoring, be sure to include all year to date actual expenditure and as fine a detail as possible – nominal code for example. Couple this with any committed expenditure, which for staffing should be based on your latest staffing contractual information. At this point be sure to add back in the pending payments as these will otherwise be missed, as they won’t be in your actual expenditure.

Consider for a second that you have a two month back log of incremental rises. These would not be in your actual expenditure, and neither would they be in your commitments in your original budget profile – a hefty chunk of expenditure to not include in your year-end projection.

This could result in the school making key decisions on data which is not accurate, therefore spending the surplus only to realise two months later it never really existed. This has hopefully given an idea of the importance, but a couple of further tips to ensure you air on the side of caution and to avoid some commonly made mistakes.

It is essential for schools to consider: budgeting for future open staffing positions, and have details of any contract details pencilled in, not just an amount. This will not only be far more accurate but will encourage employment within the scale range budgeted for; projecting year-end balances differently depending on the detail, such as for staffing items if running a salary monitor, project actuals plus commitments. It is important to see an underspend if it exists. You may need it elsewhere in your budget midway through the year; projecting a minimum of your original allocated budget for non-staffing, unless your actuals plus commitments exceed your allocated budget, in which case forecast this figure; and that all budget variances exceeding five per cent in either direction from your allocated budget should be justifiable and explained, which will give confidence to the governors.

The spreadsheet conundrum
With an understanding of the importance of budget monitoring, it demonstrates the need for a robust budget management system. Many schools have been using a trusted spreadsheet for some time with complex formulas and multiple worksheets. Not only are the spreadsheets familiar but a huge amount of time and effort was invested into building and maintaining them, and users are often apprehensive to implement a new system.

Spreadsheets are known to carry inaccuracies with a simple formatting or formula errors that are hard to trace and correct. This leads to increasing mis‑calculation and budgets quickly lose substance and valuable time is wasted identifying and reconciling queries. In the event of a member of staff being absent, a significant handover may be required to explain the workings of the budget spreadsheet for anyone else to understand and continue to manage the data.

Practical rewards
A user-friendly budget management system enables consistent data processing across multiple users within the school and access to permission-based information. This alleviates any key dependencies within the team and allows for succession planning.

After a practical budget management training session with live data, users will be able to set and analyse their budgets almost immediately. Business and finance managers are able to see the impact of any new budget scenarios, for example, increased or reduced teaching staff, at the click of a button. The time-saving and accuracy benefits alone delivers return on investment and value for money within just a few months.

While spreadsheets can be riddled with inaccuracies, require constant levels of maintenance and time, and hide anomalies, a good management system is the opposite. It offers a user-friendly and highly accurate way to manage the budget for the school, or, in fact, multiple budgets for multiple schools, and saves on time – which is a precious commodity in any educational establishment.

Further Information